In an effort to garner the youth vote for a second time in 2012, President Obama has told students drowning in student loan debt that he is going to save them. As the New York Post points out today, not only is Obama's plan to "help" students get out from under their debt, the plan is pretty much worthless, it won't change much and in fact will make the student loan problem even bigger by sticking the bill with the taxpayer while keeping students in debt. Also, Obama has been trying to encourage students to work in the public sector. Reality check: the public sector is on the chopping block as taxpayers can no longer afford to pay for the paychecks of government workers.
It’s officially a crisis. Student loan debt has hit the $1 trillion mark, exceeding Americans’ total credit card indebtedness. Unemployed graduates with huge loan balances are camping out in “Occupy” camps -- the Hoovervilles of our age -- around the nation. And President Obama, perhaps afraid those camps will be dubbed “Obamavilles,” as indeed they have already been by some, has unveiled a new proposal that promises to help graduates who are drowning in debt.
Unfortunately, “promises” is the correct word. Though unveiled with much fanfare, the Obama proposal doesn’t really do much. First, as the Chronicle of Higher Education pointed out in an article characterizing it as mostly political, “The benefit is available only to current students. Those jobless college graduates who are protesting on Wall Street and at similar events elsewhere won’t qualify.”
Second, even for those who do qualify, the benefit doesn’t amount to much. Daniel Indiviglio of The Atlantic Monthly calculated that the president’s plan will save the average grad less than $10 a month. (Even those with $100K in debt will save only $28.50 a month). You can make that sound like more -- and the White House tried -- by touting total savings over the life of the loan, but this isn’t going to rescue anyone who’s financially underwater. It’s a beer and a slice a month, more or less.
At best, it’s a band-aid solution. The real problem is that we’ve been running a higher education bubble, one that -- like the real-estate bubble -- has been pumped up by cheap government money. Since 1999, student loan debt has increased by 511%, while disposable income has increased by only 73%.
That’s because when the government subsidizes something, producers respond by raising prices to soak up as much of the subsidy as they can. College is no exception. Tuition has been increasing much faster than disposable income, and families -- believing that a college education is a can’t-lose investment, much as they used to think houses were -- have been making up the difference with debt. After all, we’re told, student loan debt is “good debt,” because a college degree guarantees more earnings.
Tell it to the Occupy Wall Street protesters, many of whom note that they’re deep in debt for fancy degrees that didn’t get them jobs.
the real incentive-alignment part is this: Put the institutions who issued the degrees on the hook for the money they received. Making them eat the entire loan balance would probably bankrupt a lot of colleges (though that should tell us something about the problem right there), but sticking them with even a small fraction -- say, 10% or 15% -- would be enough to inspire a much greater degree of concern for how much debt students take on while in school, and for how likely they are to find gainful employment after graduation.
Instead of bailouts, Obama should be offering students and recent graduates this advice: Don't go to a school you can't afford, there are plenty of affordable colleges and universities that can get a student the education they need to succeed. Look up the definition of a loan before applying for one. Yes, it means borrowing money and then paying it back. Don't major in a field where employers aren't hiring (i.e. sociology, anything ending in "studies"). Don't major in a field that requires another degree to get a job if you can't even afford your first degree. Work in college, don't just party. Start saving for college well in advance of actually going to college.
Or how about this idea? Don't go to college at all, go to a technical-trade school, where paying for education is almost guaranteed to land you a job, unlike college degrees these days. The fields of study available at a trade school are exactly what the market place is looking for in terms of employment. (It really is simply supply and demand) As a country, we really have to get past this idea that, "If you don't go to college, you're a loser." Advancing one's education is very important, however that advancement doesn't have to happen a a university and in many cases, it shouldn't.